Julie contributed fully depreciated ($0 basis) property valued at $20,000 to the

Question

Julie contributed fully depreciated ($0 basis) property valued at $20,000 to the JK Partnership in exchange for a 50% interest in partnership capital and profits. During the first year of partnership operations, JK had net taxable income of $50,000. The partnership distributed $20,000 cash to Julie. Julie’s adjusted basis (outside basis) for her partnership interest at year-end is:

a.

$0.

b.

$5,000.

c.

$25,000.

d.

$30,000.

e.

None of the above.

a.

$0.

b.

$5,000.

c.

$25,000.

d.

$30,000.

e.

None of the above.

Explanation / Answer

Calculation of julie adjusted basis for her partnership interest

Contribution to partnership firm

(since the property is fully depreciated hence capital contribution will be treated as nil even if property valued at $20000

$0

Share of Income during the year (50% * $50000)

SUCH SHARE IN PROFIT WILL BE DISTRIBUTED TO PARTNER AND SUCH PROFIT IS ALWAYS TRANSFERRED TO PARTNER CAPITAL ACCOUNT

Less : Capital drawings

SUCH DRAWINGS ARE DRAWINGS OF CAPITAL

Particulars Amount

Contribution to partnership firm

(since the property is fully depreciated hence capital contribution will be treated as nil even if property valued at $20000

$0

Share of Income during the year (50% * $50000)

SUCH SHARE IN PROFIT WILL BE DISTRIBUTED TO PARTNER AND SUCH PROFIT IS ALWAYS TRANSFERRED TO PARTNER CAPITAL ACCOUNT

$25000

Less : Capital drawings

SUCH DRAWINGS ARE DRAWINGS OF CAPITAL

$20000 Balance (adjusted basis ) for julie $5000

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